The student loan program known as Grad PLUS, was enacted under President George W. Bush’s tenure in 2006. This program provided graduate and professional students (almost) unlimited access to borrowing power- at below market rates. The cap had been $ 138,500 for grad school (which also included college debt that was still unpaid- that undergraduate cap is unchanged at $ 57,500). And, now- the program has new features like long-term debt forgiveness and income-based repayment.
The total student debt that the government (this is government- and not private bank- funded) is holding is on the order of $ 1.1 trillion. Almost half of that total has been accrued by graduate and professional (law, medicine, etc.) students. Here’s the real kicker- only 16% of the borrowers account for 40% of the total student loan debt.
And, among the professions, one of the biggest beneficiaries has been law schools and law school students. (Actually, it’s not clear that law school students have benefitted- but they were able to borrow money. The schools have clearly benefited.) Potential lawyers began borrowing big time- their debt growing from an average of $ 66K to $ 88K for those attending public institutions and $ 102K to $ 127 for private law schools over the past few years. Part of the reason that debt has not skyrocketed more is that only 4 of 10 law students pay the complete tuition; at the turn of the century, that percentage was 60%. And, of those law school tuition debts- about half the students are using the Grad Plus program.
The real problem? SciTech folks who ring up big tabs for grad school debt are pretty much assured of employment. But, lawyers? The demand for lawyers is over- more from the change in law firm practice than from the ‘Great Recession’, which is when the downward employment trend was actually noticed.
It’s not just the low percentages of lawyers that have been fully employed upon graduation. The situation is much worse because many law schools, worried about their rankings, arrange for graduates to work for public interest groups at ridiculously low wages (sometimes for no wages, too). In this manner, the school can claim higher employment rates for their grads than is actually the fact.
Wait- there’s more to this problem. The mythology behind the passage of Grad Plus was that graduate students would pay a higher interest rate than undergrads- which would raise the profitability of the the direct loan program. The facts? More and more students are opting for that loan forgiveness (removing the principal debt value) and income-based repayment options. This theory lets these unemployed lawyers be willing to accept low-paying public service employment, since the Feds take the hit with lowered debt repayment.
And, let us not forget that the student loan program accounts for the same amount of debt (money) that led to the Great Recession. It was about $ 1 trillion in mortgage debt back then.
What do you think will happen with this student loan debt issue?
